Lawmakers call for probe into gas-price spike in California

Published: Tuesday, Oct. 9, 2012 9:18 a.m. CST

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SACRAMENTO, Calif. (MCT) — With gas prices hovering near $5 a gallon in California, the state’s politicians are simultaneously pressing for relief and questioning whether the oil industry is manipulating the market.

The California Air Resources Board said Monday that it had granted Gov. Jerry Brown’s request over the weekend to allow refineries to switch early to making cheaper winter-grade fuel. The idea is to boost the supply of gasoline, but analysts said it’s unclear how quickly the change will bring prices down, or by how much.

U.S. Sen. Dianne Feinstein, D-Calif., on Monday questioned whether the record prices are truly the result of a shortage. She fired off a letter to the Federal Trade Commission seeking a probe into possible market manipulation, citing past price increases she attributed to “malicious and manipulative trading activity.”

The FTC did not respond directly, saying it doesn’t comment publicly on investigations.

Late Monday, Sen. Barbara Boxer, D-Calif., weighed in, asking the U.S. Department of Justice’s Oil and Gas Price Fraud Working Group to investigate.

Monday marked the third straight day of all-time high prices in California. National gas price tracker GasBuddy.com put the average price of a gallon of gas in California at $4.66, virtually unchanged from Sunday, and it noted that the Sacramento-area average of $4.53 was up a whopping 45.8 cents from just one week ago. AAA put the local average price at $4.55 on Monday.

That compares to a nationwide average gasoline price of $3.81 a gallon.

Energy analysts blame the high prices on a perfect storm of supply disruptions that began Aug. 6 with a fire at the Chevron Refinery in Richmond, a key piece of the state’s petroleum infrastructure.

The latest spike followed more refinery troubles, including an Oct. 1 power outage at ExxonMobil’s refinery in Torrance. That refinery has since resumed normal operations. That same day, Chevron’s Kettleman-Los Medanos pipeline, which delivers crude to San Francisco Bay Area refiners, was shut down after elevated levels of organic chloride were detected in the oil.

In-state supplies were further limited by maintenance work at Phillips 66 facilities in the Bay Area and Southern California.

The price spike is specific to California, in part because the state has its own regulations for producing gasoline. California cannot import gas on short notice and is not connected to pipelines serving other states.

On top of that, California has high gasoline taxes and fees — nearly 69 cents a gallon, according to the American Petroleum Institute. By comparison, API said combined gas taxes nationwide average 49.3 cents.

Also, because California standards for gasoline are stricter than federal clean-gas mandates, refiners say that adds to their production costs.

The state’s early switch to winter-grade gasoline aims to bring those production costs down.

California usually converts to winter-grade gas after Oct. 31. Winter-grade fuel is a more-affordable mix and easier to make but evaporates more quickly than summer-blend gas, sending more pollutants into the air.

Nationally, seasonal switchovers date back to the mid-1990s, when the Environmental Protection Agency instituted a program to reduce pollution and smog during the so-called summer ozone season.

Brown reasoned that an early transition to winter-blend gasoline “could increase California’s fuel supply by up to an estimated 8 to 10 percent with only negligible air quality impacts.”

It was the first time since September 2005, in the aftermath of Hurricane Katrina’s devastation of the Gulf of Mexico’s oil infrastructure, that such action was requested of the California Air Resources Board.

Air Resources Board spokesman Dave Clegern said it was uncertain how quickly the government directive could lower prices at the pump.

“Now, the timeline is pretty much up to (refiners),” he said. “It does send a good market signal that help is on the way.”

Attempts to get response from in-state refiners on Monday were unsuccessful.

Gregg Laskoski, a senior petroleum analyst with GasBuddy, said Californians “could see some relief as early as Wednesday” based on last Friday’s downturn in wholesale gas prices in California. Historically, it usually takes three to five days before changes in wholesale prices start to show up at gas pumps.

Laskoski warned, however, that any price decrease is not likely to be dramatic, because gas dispensers have to deplete supplies of gas purchased at formerly higher prices.

“That (at the pump) decrease is never instant, even under the best of circumstances,” he said. “It’s going to be gradual, and it remains to be seen how much of a decrease there’s going to be. It’s going to vary.

“But I think toward the end of the week, prices could be quite a bit lower.”

Other analysts hedged on a timeline for price decreases, saying gas inventories in California are at a 10-year low and that it will take time for supply to sufficiently catch up with demand.

In an election season, it’s no surprise that skyrocketing gas prices have quickly become a political issue, said Jack Pitney, a political science professor at Claremont McKenna College. Politicians, he said, have long felt a need to respond to high gas prices, regardless of whether their efforts have any effect.

“I’m old enough to remember the same call from about 40 years ago,” Pitney said. “I remember being stuck in gas lines in 1973, and politicians then were calling for investigations. It’s standard operating procedure.”

Pitney believes the October price spike could have a detrimental impact on November tax initiatives, including the one Brown is touting, Proposition 30.

However, Democratic political strategist Bill Carrick said he didn’t think gas prices would influence voter decisions next month.

“The people who show up to vote are going to make a judgment based on what they read in the initiatives,” he said. “In general, people read these and say, ‘Is this a good idea or a bad idea?’ I don’t think anybody consciously says these things are related.”